SMELLIE SNIFFS THE BREEZE: Smellsianism’s future

Article – BusinessDesk

Oct. 13 (BusinessDesk) – It’s a mark of branding success when a business reporter’s rejection of a life-time’s adherence to “the free market” provokes a frisson of shock and surprise down here in what’s laughingly referred to as the Wellington …

SMELLIE SNIFFS THE BREEZE: What future for Smellsianism?

By Pattrick Smellie

Oct. 13 (BusinessDesk) – It’s a mark of branding success when a business reporter’s rejection of a life-time’s adherence to “the free market” provokes a frisson of shock and surprise down here in what’s laughingly referred to as the Wellington “beltway”.

The conversion of commentator Bernard Hickey to a new-found enthusiasm for currency controls, trade protectionism, restrictions on foreign direct investment, the abandonment of inflation as the sole focus of monetary policy, and various other crimes against economic orthodoxy has done just that.

Likening his road to Damascus experience to a priest who’s stopped believing in God, Hickey’s recent “mea culpa” for supporting the economic liberalisation of the last three decades carries a tinge of the zealot reserved for penitents in the afterglow of a baptismal dunking.

As a high priest myself of the economic cult of Smellsianism, and fearing a collective rush for the Kool-Aid, a moment’s reflection on this wholesale rejection of the forces that threaten to lift billions of people in the developing world out of grinding poverty might be worthwhile.

For a start, there never has been and never was a “free market” any more than there was a free lunch. If there was either, all the American bankers who contributed to the global financial crisis would be in jail now, and New Zealand would be the richest country in the world.

For all the rhetorical love of words like “unfettered” and “cut-throat” when applied to normal commercial activity, the fact is that the economies that have succeeded best in the past 50 years are not marked so much by economic freedom as by the rule of law and stable politics.

The rule of law has, albeit imperfectly, been the process by which markets have been regulated, and the election of politicians has been the way those laws got made.

What Hickey fears now – and I agree with him on this – is that the forces unleashed by the global financial crisis could replicate the conditions that gave succour to the rise of the extremist politics that underpinned both WWII and the Cold War.

Extremes of wealth and poverty, and the destruction of wealth by the Great Depression, were a politically toxic sludge that took the world 60 years to cope with, at the cost of tens of millions of lives.

That period only ended with the fall of the Berlin Wall and the emergence of communist China as a would-be capitalist economy – both of which are events of the last 30 years. Since then, even with the recent Western world gorging unsustainably on debt, living standards in the West have exploded. Just ask a teenager to live without a cellphone.

And in less than 20 years, China has created so much wealth and opportunity that even ancient Central Asian cities like Kashgar – a remote backwater on the old Silk Route – are targeted for Guangzhou-style makeovers.

The result will probably be architecturally hideous and ethnically dislocating. But it will also deliver clean running water, constant electricity, rail and road connections and previously unimaginable economic opportunity for this and future generations of Kashgaris. Western tourists looking for photogenic poverty, however, will be disappointed.

In other words, the market failure that Hickey laments is a failure that has occurred only in the parts of the world that were already successful.

It’s undeniable that the prospect of years of de-leveraging and low growth in the developed world is painful and worrying if you happen to live in the developed world.

To suggest, however, that it’s time to retreat to the castle – or perhaps in New Zealand’s case, the leaky home – is an extreme reaction.

Of course, there may be nothing wrong politically with a small, overly indebted nation with bugger-all clout in the wider world deciding to indulge in a bout of economic nationalism – as long as we’re clear-eyed about that as well. If enough people want it, stable politics will make it happen.

Look at it this way: which of these two nations has been more successful economically, socially, culturally, and environmentally over the last 50 years: the United States or North Korea?

Neither has a “free market”, but one is certainly freer than the other. The country that let its people find their own way, and made them responsible for their own triumphs as well as their mistakes, is unmistakably still more successful, vibrant and far less likely to come apart at the seams.

Indeed, it’s only as American politics turns on itself, repeatedly paralysing administrations and forcing ever more generous and unaffordable pork-barrelling and bail-outs, that the U.S. model is threatened. As the threat rises, so the greenback falls.

Meanwhile, for all the talk of currency wars and the reluctance of China to let the yuan appreciate, the fact is that market economics is what’s driving China’s new wealth and, as sure as eggs, a time will come soon when China wants its currency to be strong.

After all, a strong currency lets you buy anything you want from anywhere you want, and a billion Chinese with improving living standards need a lot of stuff.

Faced with this new reality, in which the East is suddenly winning and the West is suddenly losing, the temptation is to cut off our noses to spite our faces, especially because these economic trends strike at our highly developed Western sense of cultural supremacy and entitlement.

But it’s an illusion, especially in a country like New Zealand that could fall off the map and no one would notice, to suggest that constructing walls based on economic nationalism would improve economic outcomes. It might feel like shelter to some, but it would be a prison of our own making.


Content Sourced from
Original url



  1. Bernard Hickey, 13. October 2010, 14:49


    Cheers. I’m not quite calling for a return to Muldoonism and you’re right that the market never was free.
    The trouble is our policymakers have acted as if it was free and set our monetary policy framework accordingly.
    Now that the tide has gone out and its clear that the big investment banks driving the global capital markets were essentially corrupt and are now bankrupt people are beginning to realise that dropping your pants to the world is not a good policy.
    I’m suggesting we be a bit more hard nosed about our policy around capital controls. Brazil, India, Thailand, South Korea and Ukraine have all announced capital controls or currency invterventions in recent weeks to protect themselves from the desperation of the competitive devaluations in America, Japan, China and Europe.
    Things are different now. I reckon we should acknowledge that.
    Here’s a few suggestions that aren’t too radical and are in effect already being considered.


  2. Berend de Boer, 15. October 2010, 19:38

    Sorry Bernard, “Brazil, India, Thailand, South Korea and Ukraine” are probably not the examples we want to imitate.

    And “not quite calling for a return to Muldoonism”? You wrote Marx was right!

    The failure happened in the most regulated part of the market and instead of letting them fail, all we got was crony capitalism: incredible amounts of taxpayers money were pumped into institutions that could have gone bankrupt without anyone much noticing.

    Look at how much this has already cost NZ.

    And this was not free, taxpayers were forced to pay.

    In a truly free market, this would not have happened.

  3. James, 16. October 2010, 16:41

    We have never had a free market….not here in NZ or anywhere else in the world….at least not for a long time. A real “free market” is just free people interacting and trading values without the threat or actual use of force being involved….The states only role is that of rights protection by objectively running the police,law courts and a military…nothing else.There is no coercive taxation…all funding of a ( now ) far smaller,constitutionally limited state is done by voluntary donation and a user pays fee structure.

    There is no drug prohibition,no laws against any kind of consentual sex or other consentual interaction and there is a total seperation of the State from the economy. Hickey maybe needs to aquaint himslef with true free market Capitalism before he commits to the long failed dogma of central planning.

    Get back to me when a real free market arrives….until then we will just have to wallow on under this over governed, stagnant, mixed economy.